20-F: VCI Global Limited Reports Increased Revenue but Identifies Material Weaknesses in Internal Controls for Fiscal Year 2024

Sentiment:

Annual Report 13 May 2025 1:20 PM

VCI Global Limited's 2024 annual report reveals a revenue increase alongside the identification of material weaknesses in internal control over financial reporting.

Capital raiseOn January 11, 2024, the Company entered into certain securities purchase agreements (collectively, the Purchase Agreement) with certain institutional investors (the Investors) for a follow-on offering (the Offering) of 2,200,000 ordinary shares, no par value per share (Ordinary Shares) and accompanying Series A warrants to purchase up to an aggregate of 2,200,000 at an exercise price of $1.25 per Ordinary Share (the Series A Warrants) and Series B warrants to purchase up to an aggregate of 2,200,000 Ordinary Shares at an exercise price of $1.25 per Ordinary Share (the Series B Warrants and together with the Series A Warrants, the Warrants) at a combined public offering price of $1.25 per Ordinary Share and accompanying Series A Warrant to purchase one Ordinary Share and Series B Warrant to purchase one Ordinary Share.On September 2, 2024, we entered the Purchase Agreement with Advance Opportunities Fund I (AOF) whereby AOF purchased from us a $1,000,000 Senior Convertible Note.On August 1, 2024, we entered into a Purchase Agreement and a three-year ordinary share purchase warrant (the Commitment Warrant) with Alumni Capital LP (Alumni).Pursuant to the Purchase Agreement, the Company has the right, but not the obligation to cause Alumni Capital to purchase up to $5 million of our Ordinary Shares (the Commitment Amount), no par value, at the Purchase Price (defined below) during the period beginning on the execution date of the Purchase Agreement and ending on the earlier of (i) the date on which Alumni has purchased $5 million of our common stock shares pursuant to the Purchase Agreement or (ii) June 30, 2025.The Purchase Agreement was subsequently amended on September 27, 2024, to increase the Commitment Amount to $35,000,000.On October 1, 2024, we filed a registration statement on Form F-1 (File No. 333-282454), declared effective on October 11, 2024, in relation to the offering and resale of up to 476,363,636 of our ordinary shares by Alumni, which include up to (i) 276,363,636 ordinary shares that may be issued and sold to the Alumni pursuant to the Purchase Agreement and (ii) 200,000,000 ordinary shares underlying the Purchase Warrant Agreement (the Alumni Warrant) issued to Alumni Capital as a commitment fee pursuant to the Purchase Agreement.On January 13, 2025, the Company entered into an Amended Modification Agreement to the Purchase Agreement with Alumni Capital to, among other things, increase the Commitment Amount to $135,000,000, increase the purchase price payable by Alumni Capital under the Purchase Agreement and lower the number of Warrant Shares as a percentage that is required to be underling the Purchase Warrant.On July 12, 2024, we entered into a securities purchase agreement with certain investors (the July 12 Purchasers ), pursuant to which we agreed to issue and sell to the July 12 Purchasers an aggregate of 4,000,000 Ordinary Shares in a registered direct offering.On July 15, 2024, we entered into a securities purchase agreement with certain investors (the July 15 Purchasers ), pursuant to which we agreed to issue and sell to the July 15 Purchasers an aggregate of 2,700,000 Ordinary Shares in a registered direct offering.On July 25, 2024, we entered into two securities purchase agreements with certain accredited investors (the July 25 Purchasers ), pursuant to which we agreed to issue and sell to the July 25 Purchasers an aggregate of 3,568,035 Ordinary Shares, no par value per share, in a registered direct offering.On December 4, 2024, we entered into two securities purchase agreements with certain accredited investors (the December 4 Purchasers ), pursuant to which we agreed to issue and sell to the December 4 Purchasers an aggregate of 2,133,334 Ordinary Shares, no par value per share, in a registered direct offering.On December 5, 2024, we entered into a securities purchase agreement with an accredited investor (the December 5 Purchaser ), pursuant to which the Company agreed to issue and sell to the December 5 Purchaser an aggregate of 533,333 ordinary shares (the December 5 Shares ), no par value per share, in a registered direct offering.On January 8, 2025, we entered into three securities purchase agreements with certain accredited investors (the January 8 Purchasers ), pursuant to which the Company agreed to issue and sell to the January 8 Purchasers an aggregate of 1,500,000 ordinary shares (the January 8 Shares ), no par value per share, in a registered direct offering.On January 13, 2025, we entered into a securities purchase agreement with an accredited investor (the January 13 Purchasers ), pursuant to which the Company agreed to issue and sell to the January 13 Purchaser an aggregate of 1,149,425 ordinary shares (the January 13 Shares ), no par value per share, in a registered direct offering.On January 23, 2025, we entered into a securities purchase agreement with an accredited investor (the January 23 Purchasers ), pursuant to which the Company agreed to issue and sell to the January 23 Purchaser an aggregate of 1,120,448 ordinary shares (the January 23 Shares ), no par value per share, in a registered direct offering.On February 15, 2025, we entered into certain securities purchase agreements with two investors (the February 15 Purchasers ), pursuant to which the Company agreed to issue and sell to the February 15 Purchasers an aggregate of 3,300,000 ordinary shares (the February 15 Shares ), no par value per share, in a registered direct offering.On March 17, 2025, we entered into certain securities purchase agreements with two investors (the March 17 Purchasers), pursuant to which the Company agreed to issue and sell to the March 17 Purchasers an aggregate of 5,100,000 ordinary shares (the March 17 Shares), no par value per share, in a registered direct offering.

Worse than expectedThe company identified material weaknesses in its internal control over financial reporting.

Summary

VCI Global Limited's annual report for the fiscal year ended December 31, 2024, indicates a revenue increase of 36.99% to MYR 124.39 million (USD 27.82 million).
The increase in revenue is attributed to technology development, solutions, consultancy services, and interest income from microfinancing.
Despite revenue growth, the company identified material weaknesses in its internal control over financial reporting.
These weaknesses include inadequate documentation, lack of operating effectiveness tests, and insufficient qualified accounting personnel.
The company is implementing remediation measures, including hiring additional staff and providing further training.
The company reported a net income of MYR 33.87 million (USD 7.58 million) for the fiscal year ended December 31, 2024, an increase of MYR 656,308 (USD 339,310) from the previous year.
Operating costs increased by 54.55% to MYR 91.11 million (USD 20.38 million), driven by consultant fees, IT expenses, and employee benefits.
The company's cash and cash equivalents at the end of the year stood at MYR 36.21 million (USD 8.10 million).

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While revenue increased, material weaknesses in internal controls raise concerns. The numerous capital raising activities also suggest a need for cash, which could be a sign of financial strain.

Positives

Significant revenue growth driven by technology development and microfinancing activities.
Increased interest income due to expansion of the customer loan base.
Strategic investments in generative AI and AI digital human technology.
The IPO market in the United States demonstrated a robust recovery in 2024, with proceeds rising by 48% and the number of IPOs increasing by nearly 40%.

Negatives

Material weaknesses identified in internal control over financial reporting.
Increased operating costs due to consultant fees, IT expenses, and employee benefits.
Impairment allowance on trade receivables increased significantly.
Legal and professional fees increased significantly due to multiple fundraising activities.

Risks

The company's disclosure controls and procedures were not effective to provide reasonable assurance that material information required to be disclosed by us in the reports that we file with, or submit to, the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in by the SECs rules and regulations.
The company has inadequate documentation on internal control over financial reporting.
The company does not maintain documentation on operating effectiveness tests of internal control over financial reporting.
The lack of sufficient qualified accounting personnel with appropriate understanding of SEC reporting requirements commensurate with the Companys financial reporting requirements, which resulted in a number of internal control deficiencies.
The increasing sophistication and frequency of cybersecurity threats, including targeted data breaches, ransomware attacks designed to encrypt our data for ransom and other malicious cyber activities, pose a significant risk to the integrity and confidentiality of our data systems.

Future Outlook

The company expects overall operating costs, including marketing expenses, salaries, and professional and business consulting expenses, to continue to increase in the foreseeable future, as it plans to hire additional personnel and incur additional expenses in connection with the expansion of its business operations.

Management Comments

Management is implementing remediation measures to address material weaknesses in internal control over financial reporting.
Management is of the opinion that the Company has sufficient funds to meet its working capital requirements and debt obligations, for at least the next 12 months from the unaudited condensed consolidated financial statement filing date.

Industry Context

The global consulting services market is poised for steady growth, with the market expected to expand to US$447.72 billion by 2029, reflecting a compound annual growth rate (CAGR) of 4.81%.

Comparison to Industry Standards

The IPO market in the United States demonstrated a robust recovery in 2024, with proceeds rising by 48% and the number of IPOs increasing by nearly 40%from 127 in 2023 to 176 in 2024.
Total proceeds grew from US$22.2 billion in 2023 to US$33 billion in 2024.
Notably, 20 IPOs raised over US$500 million, including seven that exceeded the US$1 billion mark.
Cross-border IPO activity remained robust in 2024, with 113 global listings, up from 83 in 2023.
Despite a 48% decline in average deal size, the United States continued to lead as the top destination for international issuers, hosting 101 cross-border IPOsaccounting for 89% of such listings and marking a 51% increase from the previous year.
The M&A activity continues to thrive, with global deal value reaching US$1.3 trillion in the first half of 2024, reflecting a 5% increase over 2023.
Corporates are increasingly turning to mergers and acquisitions as a strategic tool for growth, especially evolving market dynamics, and the pursuit of operational efficiency.
Despite a 35% decline in the number of IPOs across the Asia Pacific region from 2023 to 2024, Malaysia recorded its highest level of IPO activity in 19 years.
In 2024, Malaysia hosted 49 IPOsan increase of 17 compared to 32 in 2023representing a 53% year-on-year growth.
The country recorded a 105% annual increase in proceeds, rising from US$0.8 billion in 2023 to US$1.7 billion in 2024.
The M&A landscape in Southeast Asia, particularly in Malaysia, is showing strong positive momentum.
While overall M&A activity across the Asia-Pacific region experienced a slight decline, Malaysia has stood out as a bright spot, with deal volume rising by 87% year-on-year in the first half of 2024, totaling US$8.3 billion.
In 2024, Malaysias PE and VC industry managed RM24.7 billion in committed funds, with PE dominating at RM18.01 billion and VC at RM6.7 billion.
The IT Consulting and Implementation market in Malaysia is projected to generate a revenue of US$278.45 million in 2025.
This market is expected to grow at a compound annual growth rate (CAGR) of nearly 6% from 2025 to 2029, reaching a market volume of US$347.39 million by 2029.

Related Party Transactions

Victor Hoo, our Chairman, and Karen Liew, our Executive Director, are spouses.

Stakeholder Impact

Shareholders may experience volatility in share price due to market conditions and company-specific factors.
Employees may be affected by changes in compensation, benefits, and job security.
Customers may benefit from improved services and solutions.
Suppliers may experience changes in demand and payment terms.
Creditors may be affected by the company's ability to meet its debt obligations.

Next Steps

Implement remediation measures to address material weaknesses in internal control over financial reporting.
Continue to evaluate and improve internal control over financial reporting.
Monitor and manage financial risks, including market, credit, and liquidity risks.
Continue to leverage domain expertise and broad capabilities to help clients with strategic planning and to identify issues that might arise, to be well-prepared before a crisis.

Key Dates

Date	Description
April 29, 2020	VCI Global Limited incorporated in the British Virgin Islands.
April 13, 2023	Ordinary Shares listed on the Nasdaq Capital Market.
June 6, 2023	First single tier interim dividend of USD0.01 per Ordinary Share declared.
July 3, 2023	Record date for the first single tier interim dividend.
July 31, 2023	Payment date for the first single tier interim dividend.
November 5, 2024	1 for 49 reverse share split effectuated.
December 31, 2024	End of fiscal year.
April 3, 2025	1-for-20 share consolidation of its authorized share capital effectuated.
May 13, 2025	Date of certifications by the principal executive officer and principal financial officer.

Keywords

revenue, internal control, financial reporting, technology development, consulting, microfinancing, operating costs, net income, financial statements, VCI Global

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